Chapter 3 Market Equilibrium Changes in Market Demand and Supply

These flashcards cover key concepts and cases related to market equilibrium and how changes in demand and supply affect price and quantity.

Market Equilibrium

A situation where the quantity supplied equals the quantity demanded at a certain price.

Demand Curve Shift

An increase or decrease in demand which may lead to a rise or fall in equilibrium price and quantity.

Supply Curve Shift

A change in supply that results in either an increase or decrease in equilibrium price and quantity.

Case 1: Increase in Demand

When demand increases, the equilibrium price (P) and quantity (Q) both increase.

Case 2: Decrease in Demand

A decrease in demand leads to a decrease in both equilibrium price (P) and quantity (Q).

Case 3: Increase in Supply

An increase in supply causes the equilibrium price (P) to decrease and quantity (Q) to increase.

Case 4: Decrease in Supply

Decreased supply results in an increase in equilibrium price (P) and a decrease in quantity (Q).

Expected Price Increase

When buyers anticipate higher future prices, leading to an increase in current demand and a decrease in current supply.

Expected Price Decrease

When buyers expect lower future prices, which results in decreased current demand and increased current supply.

Equilibrium Price Over Time

The long-term effect of combined shifts in demand and supply on the equilibrium price.

Investment Rule of Thumb

If increase in Demand > increase in Supply, P* increases; if equal, P* stays the same; if less, P* decreases.